The banking, financial services, technology, housing and insurance sectors will be the main drivers for the market due to their improved outlook, current lower interest rate regime
By Ravi Singh
In 2021, equity markets had a historical move as the benchmark indices touched new life time highs with 18000 and 60000 mark for the first time in history. The key factors in driving the market in 2021 were improved macro indicators, strong global liquidity, increased economic activities, significant pickup in vaccination, improvement in the consumption-related data, ease in monetary policy and sharp recovery in corporate earnings.
Mid caps and small caps have majorly underperformed large caps since the last 3 years. Being cheaper than the large caps, mid and small caps grew much faster in an economic recovery as compared to large caps. Balaji Amines, Happiest Minds Technologies and Deepak Fertilizers Petrochemicals of BSE 500 have given massive returns in 2021 and are termed as the multibaggers of 2021. ICDS, Mastek and Route Mobile among the small and mid cap segment have also outperformed the market. The increased interest of FPIs and retail participation in these segments along with the monetary liquidity for an infrastructure push by the government is going to benefit the sectors in the longer term.
In 2021, Banking, Infrastructure, IT, Auto, Metals and Pharma were among the top sectors that had given tremendous returns to the investors. With more government structural reforms in manufacturing and infrastructure still in pipelines, we expect the stocks in mid and small cap to outpace next year also. Also, as the economic cycle has picked up and revival in corporate earnings is strong, we expect the same strength to continue in 2022.
The banking, financial services, technology, housing and insurance sectors will be the main drivers for the market due to their improved outlook, current lower interest rate regime and augmented government spending. Power, Railways and Oil & Gas space will remain attractive for a mid-to-long-term perspective.
Other sectors like Travel, Tourism, Leisure, Real Estate and ancillaries like cement and other building material companies are also expected to contribute in 2022. This optimism has positively replicated on the technical charts as well.
However, given the prospect of further rise in inflation, there are chances that most of the central banks may raise interest rates to curb the liquidity. The growing uncertainty and fear over Omicron would drive the market momentum next year.
The year 2021 has been great in terms of generating returns from investments in the stock market but the year 2022 seems to be more challenging.
Top stock picks for 2022
1. ONGC – The 62 per cent increase in natural gas prices by the Indian government will boost the profitability of companies.Higher crude prices, along with a modest 5-7% growth in the company’s production volume, may push its EBITDA in next year. We estimate the company’s debt-to-EBITDA ratio will strengthen to about 1.6x to 1.9x during this period. Technically also, most of the indicators like MAs, RSI, MACD and Stochastic are showing up trend on daily chart. We expect ONGC to touch the level of 170 next year.
2. GAIL (INDIA) – Improved earnings supported by higher volumes across segments supported by boosted marketing profit due to higher gas prices may drive Gail next year. Increased production after a shutdown in the preceding quarter aided petrochemical volumes. A rise in gas consumption supported transmission volumes which will further strengthen the profits. On the daily chart, Gail stock is having a very strong support around 140 levels and the 200 day MA is supporting the buying trend. Also, RSI is in it’s lower zone, so we expect Gail to touch the target of 165 in near term.
3. HDFC Bank – Strong capitalization, enhanced liquidity, reduced NPAs and robust earnings make HDFC Bank a good choice for investment for Samvat 2078. HDFC Bank share price is trading above it’s 100/200 DEMA levels in daily chart. Stock price is placed above the parabolic SAR on weekly charts which suggest a positive trend. The target for next year stands around 1750.
4. TCS – Technology sector is overall in strong hands due to stronger dollar, digitalisation and improved business growth which is expected to continue next year also. Tata Consultancy Services share price is trading above the mean with the upper band facing in the north-ward direction indicating the price to move higher. Analysing the recent volume price action the volume have been encouraging the recent upward move indicating strong hands have started accumulating the stock at current levels. Most of the oscillators are indicating the intact bullishness in the stock. We expect TCS to touch the target of 3600 in Samvat 2078.
5. SBI (State Bank of India) – currently is trading above all term MAs like 25 DMA,50 DMA,100 DMA and 200 DMA, which confirms the positive momentum. Also, RSI, MACD, ADX are trading in a comfortable zone indicating bullishness in the stock. We may expect the counter to continue it’s outperformance in the coming months as well and may move towards 600 levels in the long term.
(Ravi Singh is VP & Head of Research, ShareIndia Securities. Views expressed are the author’s own.)
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